Progress in incentive-based protection of forests and other watersheds

There are two ways to look at Charting New Waters: State of Watershed Payments 2012 – the latest report released by Forest Trends on incentive-based water protection. One is that investments in watershed protection are fast approaching a tipping point – rising 25% from the previous year and with 25% of all recorded investments occurring within last two years. The other is that investments in watershed protection have a long ways to go before they are more than a scant drop in the bucket in terms of world GDP, prevalent outside of China, or independent of government/non-profit aid. The truth lies somewhere in between.

Bennett, Carroll, and Hamilton have performed an exhaustive and invaluable service in interviewing, compiling, and reviewing the work of watershed payment programs from across the globe. Investments in watershed services (IWS) are incentive or market-based mechanisms that act to preserve natural water resources. The 2012 report provides a clear and concise explanations of the breadth of programs implemented worldwide and the capital expended for each. While the authors recognize their efforts cannot paint a complete picture of worldwide IWS and are beholden to the accuracy of their survey responders, it is a thorough effort that will effectively serve as a benchmark for future research.

One of the more interesting facets of the report is the authors’ investigations into policy co-objectives of IWS projects. Nearly one-third of the programs contain policy objectives beyond water resource protection. While biodiversity and reforestation are common, other commodities such as carbon and agricultural sustainability are observed in some instances. Most interestingly, the United States has not followed the lead of other countries in linking IWS efforts with poverty reduction and jobs programs. Policy makers and planners beyond the traditional environmental realm can derive great value from the successes of IWS detailed in the report.

In reviewing each region’s efforts, there are few surprises. Africa finds itself in the most need of watershed protection, but programs are scarce and are often shuttered after several years due to a lack of sellers and buyers. Still, innovative solutions tying in multiple social benefits can be found in the region, such as public-private partnerships of the Working for Water program in South Africa. Europe’s regulatory framework often inhibits new projects from taking shape. The real driver of IWS appears be the United States. Metropolitan concerns over drinking water quality and security, combined with the EPA’s flexibility on establishing TMDL frameworks for impaired water bodies, have led to a flourishing of IWS projects across the states. Outside of latin america, the capital, number, and size of IWS programs are growing, and the trend should continue into 2012 as the global recession subsides.

Surprisingly absent from participation are countries in North Africa and the Middle East. These regions are anticipated to bear the greatest water resource stresses from climate change, and NGO initiatives to address the concerns are common. That incentive-based approaches are not in the toolbox for the regions should be troubling for environmentalists and economists alike.

Because the report is global in nature, the authors make concerted efforts to negotiate the orders of magnitude of difference between China and other nations. China accounts for more than $7.5 billion of the $8.17 billion of payments extended during the 2011 year. Yet it is worth investigating whether China warrants inclusion with other nations going forward. It is crucial to recognize China’s approach is undeniably unique and hardly translatable to programs throughout the rest of the world. Programs within China predominantly involve repayments to rural residents upstream whose land was acquired through eminent domain on environmental restoration grounds or experienced hardships through other direct government interventions. That these initiatives are supported by World Bank funds, not forthcoming with data, and, according to the report, not effectively overseen at the local level, raise foreign policy questions beyond the scope of this review. It is very unlikely that other communities would have the political authority to replicate China’s programs, or would aim to. Going forward, the report may seek to report on China independently of all other nations to avoid comparing apples to oranges.

Similarly, the authors may wish to reconsider the inclusion of incentive projects where watershed protection is a secondary objective. In previous iterations, agricultural projects that sought watershed improvements as a secondary effects were considered part of the count. Seeing China’s eco-compensation efforts dwarf all other participating nations, this year’s paper restricted the requirements for consideration, yet China’s efforts were still orders of magnitude greater than the rest of the world. As agriculture is a large contributor of non-point source water pollution worldwide, and as the industry’s practices do play a vital role in shaping the health of our watersheds, it may be useful to reconsider the treatment programs in the analysis. Indeed, the efforts extended to review collateral benefits still provide great utility.

Ultimately, the report shall provide a valuable tool for an eventual comparison to traditional command and control regulation. America, Europe, and Oceania effectively monitor and regulate, point-source, and to a large degree non-point source, discharges through programs like the National Pollution Discharge Elimination System (NPDES) and the Water Framework Directive (WFD). The history of these systems detail the successes and failures of the traditional regulatory approach to clean water. As IWS programs mature, and the data becomes richer, comparisons between the to methodologies can eventually be made. The policy community can observe the differences in terms of expenditures, stakeholder buy-in, and overall pollutant reduction to chart identify the most effective policies.

In conclusion, IWS remains in a fledgling state but shows great promise in many parts of the world. The environmental community should eagerly anticipate the next annual update from the Forest Trends team.